Excelsior Manufacturing Co. v. Assigned Estate

MARSHALL, J. — On February 6, 1896, the Excelsior Manufacturing Company made a voluntary assignment, under the statutes of the State, for the benefit of all its creditors. Charles H. and John D. Eilley were made the assignees. The — 323 — company owed a number of employees for wages earned within the three months next preceding the assignment, and on the eighteenth of February, 1896, the circuit court made an order directing the assignees to pay these claims in full, which was done. Among such claims were the claims of E. E. Eilley, for $228.17, and of Charles II. Eilley, for $145.06. These payments were predicated upon section 8 of the act incorporating the company (Laws 1863, p. 179) and upon section 2538, Eevised Statutes 1889, as amended by the Act of 1895 (Laws 1895, p. 101), which creates a preference in favor of employees for wages earned within the three months next preceding the assignment. Among the assets inventoried were, first, a note of Charles H. Eilley, for $3,292; second, a note of E. E. Eilley, for $3,457; and, third, three notes of Geo. B. Dana, for $506.96, dated May 11, 1889, $500, dated November 19, 1891, and $3,184, dated August 8, 1894, respectively, and an open account against Dana for $166.50. The. assignees allowed, in favor of. said Dana, a claim for $5,095.81, but did not set off against this allowance the notes and open account due by Dana to the company. In the course of administration the assignees paid Dana two dividends, of $203.83 and $152.,87, respectively. The assignees took credit in their term reports, for $5,407.18 on account of commissions for services. The requisite term reports, showing these facts, were filed, notice given, and, no exceptions being filed, they were approved by the court. On the eighteenth of June, 1897, the assignees made a final'report and asked leave to sell the “bad or doubtful debts,” and made an application for a 'discharge. The court ordered the “bad or doubtful debts” to be sold, including the notes of Charles H. and E. E. Eilley and the notes and account against — 324 — Dana, aforesaid. Appellant Brauer became the purchaser of the Filley notes for $205, and appellant Low became the purchaser of the Dana notes and account for $25. The court then referred the matter of the whole administration to a special commissioner, who in due time reported that the assignees had on hand a cash balance of $4,257.28, and further recommended that the assignees be charged with the $348.46 dividends paid to Dana, and with the $228.17 paid to Robert E. Filley, and the $145.06 to Charles H. Filley as wages, aggregating in all, $721.69, and also reported that the notes and account against Dana were not set off against the claim allowed in his favor against the assigned estate. Thereupon, the court disapproved the sale of the “bad or doubtful debts,” and of its own motion entered an order on the assignees to show cause, on a day named, why they should not charge themselves with the following amounts: 1. The note of Charles H. Filley for. .$3,292.00 2. The wages paid Charles H. Filley.. 145.02 3. The dividends paid Geo. D. Dana. . 348.46 4. The wages paid Robert E. Filley. .. 228.17 Total.......................$4,013.65 The subsequent proceedings are thus stated by the counsel for assignees-appellants, and not controverted by the respondent, and are therefore adopted here: “The assignees filed a return to the order to show cause, in which they averred, in substance, that Charles H. Filley was not legally liable on said note for $3,292, but if he was liable, the assignees were not chargeable with the amount of the same in the proceeding, and that the court had no jurisdiction to try and determine the question whether said Filley was — 325 — so indebted to the assigned estate,, or to charge the assignees with the said sum as so much cash in their hands. Also that the $145.06 paid to Charles H. Eilley and $228.11 paid to R. E. Eilley were paid on preferred demands, pursuant to an order of the court therefor; that the sum of $348.86, paid to George D. Dana, was paid on a demand for $5,095.81, duly allowed by the assignees in his favor. Also, that the circuit court had no jurisdiction in that proceeding to try and deter-, mine those matters and questions, or to charge the assignees with said several sums as so much cash in hand; that such payments were, as made, reported by the assignees to the court in their term reports and final petition for discharge duly filed, notices of which were duly published, all as required by statute; that no creditor or other interested party filed any exceptions to such reports and petition nor were then excepting or ashing that the assignees be charged with either of said sums. “The court, of its own motion set the rule to show cause down for hearing, and, on December 22, 1898, called the same for trial. The court said:- “ ‘I will consider in evidence in the matter,' the inventory of the assignees, and the deed of assignment and the petition for discharge of the assignees, and the report of the special commissioner, as well as the application for an order to sell the bad or doubtful debts, and the list of articles ordered ’to be sold in the order of sale; and if there are any other matters in the matter that have already been filed, that may be necessary to be referred to, they may be considered in evidence.’ “Thereupon, the assignees’ attorney objected to the court considering anything in evidence, on the ground that the proceeding was in the nature of a trial over which the court had no jurisdiction, and the inventory and other documents re — 326 — ferred to were irrelevant and immaterial. The matter was then taken under advisement by the court. “On the twenty-seventh of December, 1898, the court entered an order or judgment against the assignees under the rule to show cause, as follows: “ ‘Now at this date tb4 order to show cause entered herein on December 5, 1898, coming on to be heard, come the assignees, Charles H. Eilley and John D. Filley, by attorney, and submit same to the court upon their return filed herein on December 15, 1898; and the court having duly considered said return and the evidence adduced, and being now fully advised in the premises, doth order that said assignees, Charles II. Eilley and John D. Eilley, charge themselves with the following amounts, to-wit: “ ‘First: The sum of $3,292, and to deliver to Charles H. Eilley his note for that amount. “‘Second: The sum of $145.06, the amount paid to Charles H. Eilley (one of the assignees) when he was at that time indebted to the estate. “ ‘Third: The sum of $348.46, being the amount paid by assignees to George D. Dana in dividends, when he was at the time indebted to the estate. “ ‘Fourth: The sum of $228.17, being the amount paid to R. E. Eilley, when he was at that time indebted to the estate.’ “To this action of the court the assignees then and there duly saved their exceptions. “On January 9, 1899, the assignees filed their motion to set aside said order or judgment, assigning as grounds for the same that the court had no jurisdiction to make such order; that said order was based upon the assignees’ application or petition for final discharge from their trust, notice of which had been duly advertised and the same duly filed as required — 327 — by the statute, and no person interested in the assignment had filed written or other objections to said application or to the discharge of the assignees within the time prescribed by statute. That the assignees were not chargeable in that proceeding with the several sums ordered to be charged against them in said order. That ‘said order is violative of sections 28 and 30, article 2, of the Constitution of Missouri; and section 1 of the fourteenth amendment to the Constitution of the United States, in this, that it deprives, or seeks to'deprive, these assignees of their right of trial by jury, and of their property .without due process of law, and denies to them the equal protection of the law.5 “On December 21, 1898, the court also made an order ‘that the assignees herein, within ten days from this date, declare and pay one per cent dividend on all allowed claims of the assigned estate,5 and the assignees duly excepted to the court’s action in that behalf. “On January 9, 1899, the assignees filed their motion to revoke or set aside the order to pay one per cent dividend, assigning as ground therefor that the court has no power or jurisdiction to make an oder to pay a dividend on the demands allowed, after the payment of the first dividend on such demands, of less than five per cent otherwise than when an order is made finally winding up said estate and discharging said assignees.5 “On January 9, 1899, the assignees also filed a motion to set aside the order disapproving the. assignees’ report of sale of ‘all bad or doubtful debts,5 etc., assigning as reason that the order for the sale had been duly made in conformity with the provisions of section 465, Revised Statutes 1889 ; that no creditor had appeared and filed'objections thereto, and that in the absence of such appearance and objection by a creditor, the court had no jurisdiction to disapprove said report and — 328 — sale; that the court failed to exercise reasonable discretion in refusing to approve said report of sale, and that there was no evidence before the court which authorized or justified its making said order disapproving said report of sale. “On January 16, 1899, the court overruled said several motions. The assignees duly saved their exceptions to the court’s action in that behalf, and thereafter brought the cause to this court by appeal.” Brauer and Low, purchasers of the uncollectible accounts, also appealed from the order disapproving the sale to them. I. No reason has been given by counsel, and we can conceive of none, to show any error in the order of the trial court charging the assignees with $228.17, wages paid to Robert E. Eilley. The company was created by a special act of the Legislature in 1863 (Laws 1863, p. 179). The eighth section of that act provided: “That in case said company shall at any time fail or suspend its business, all debts due to laborers or for labor done for said company in carrying on and conducting its business, shall be taken and considered as preferred claims against said company, and shall be first paid out of the assets of said company.” Section 2538, Revised Statutes 1889, as amended by the act of 1895 (Laws 1895, p. 101) provides that all corporations shall pay their employees wages due for services not exceeding one hundred dollars rendered within the three preceding months, in preference to any other claim not secured by specific liens on the property, and that, “all debts due employees or operatives for wages of their labor shall have priority of payment from the money and assets of the corporations in the hands of officers or agents, or any receiver-or assignee, — 329 — over every other claim not specifically secured. Every corporation, officer, agent, receiver, assignee or person holding money or assets, refusing to recognize the priority of employees’ claims, shall be liable to such employees for the amount of all loss and damages occasioned by his unlawfully withholding the money.” The provisions of the general statute have been properly construed by the St. Louis Court of Appeals in the case of In re Assignment Sectional Dock Co., 80 Mo. App. 1. c. 61, to entitle the employee of an assigned corporation to a priority for unpaid wages earned within three months next preceding the date of the assignment, and it was there said: “Therefore, in administering the assets of an insolvent corporation, the duty of the assignee as to' such claims is unmistakable. There is no room to question the right of preference as to them. Neither is the right of preference questionable as to past due wages whenever earned, provided the right of the laborer to the preference has been fixed or completed,” that is, if a proper demand, at the proper time, is made for them, and the right is held to be fixed and complete by the act of “bankruptcy” or rather assignment. Under the general law, therefore, Robert E. Eilley was entitled to his wages, not exceeding one hundred dollars, if earned within three months preceding a demand therefor or preceding the assignment. Under the special-act creating this corporation there is no limitation as to the amount of wages due or as to when earned, so that Robert E. Eilley was clearly entitled to the wages paid him. But he was indebted to the company in the sum of $3,457, and there is no theory of law, therefore, upon which he could be allowed to receive what the company owed him while he was indebted to the company. The fact that he had preference as to wages, only relates to his rights as against other creditors, and does not bear upon his — 330 — status as to his relations toward the company. As between him and the company he was not of right a creditor, preferred or otherwise, of the company, for he owed the company more than the company owed him, so that the one should have been set off against the other. The assignees were at fault in not so doing, and in not disclosing the facts to the court. The court properly charged them with the amount paid him under these circumstances. II. At the date of the assignment, George D. Dana owed the company three notes and an open account, aggregating, with interest figured on the notes at six per cent, $5,709.06. He held a claim against the company for $5,095.81. The assignees allowed his claim without setting off against it what he owed the company, which if set off would have wiped out his claim and left him indebted to the company in the sum of $613.25. This was error. If the assignees had sued him to recover what he owed the company he would have been entitled to >set off what the assignor 'owed him. [Smith v. Spengler, 83 Mo. 408; Green v. Conrad, 114 Mo. 651.] The assignees had the same right of set off against him, and it was their duty to set off what he owed the company against what the company owed him. Eor otherwise the funds properly applicable to the payment of other creditors would be diminished pro tanto. There is no difference in this regard between assignees and, executors, administrators or receivers, and the latter have uniformly been charged with the duty of setting off claims in favor of their estates against demands asserted against their estates. [In re Estate of Geo. H. Lietman v. Lietman, 149 Mo. 112; Woerner’s Am. Law of Admr. (2 Ed.), secs. 564, 398; Waterman on Set-Off (2 Ed.), secs: 209-297.] — 331 — The assignees paid Dana dividends amounting to $348.46 on his allowed claim for $5,095.81. If the claim of the estate had been set off, as it should have been, against the Dana claim, as shown, Dana would have been indebted to the estate, and, hence, would not have been entitled to any dividend. 'The failure to set off, and the payment to Dana of the $348.46, diminished, by that amount, the funds that would otherwise have been paid to the other creditors. This loss to them is a loss to the estate, and the court properly charged that sum against the assignees in their final settlement. III. At the time of the assignment, Charles H. Eilley, one of the assignees herein, owed the company a rlote for $3,292, dated August 8, 1894, which with six per cent interest aggregated $3,588.28. The assignees paid said Eilley $145.06 wages due him at the date of the assignment, and the assignees took credit in their term settlements for $5,407.18, on account of their services, and one-half thereof amounting to $2,703.59 went to Charles II. Eilley. Thus Charles H. Eilley received from the assigned estate $2,848.65, when he was indebted to the estate in the sum of $3,588.28. The trial court charged against both assignees the $145.06 so paid Charles H. Eilley as wages, and the face of the note, $3,292, that Charles H. Eilley owed the estate. This is assigned as error, and it was insisted in the trial court that it was improper to charge said amounts against John D. Filley at all, and that the court had no power to summarily enter a judgment on the note against Charles H. Eilley, for he was entitled to a trial by jury on the question of his liability on that note, under sections 28 and 30 of article 2 of the Constitution of Missouri, and under section 1 — 332 — of the fourteenth- amendment to the Constitution of the United States,' and the protection of those constitutional guarantees having been denied by the trial court, the assignees invoke the aid of this court in that regard. There can be no doubt that the trial court erred in thus summarily determining the liability of Charles PL Eilley on said note, nor can it be successfully denied that he was entitled to a jury trial as to his liability thereon. Under a mere rule to show cause why they should not be charged with these amounts as cash in their hands, the court entered judgment against both assignees for the full amount thereof. The extent of the liability of John D. Eilley could in no event be more than the sum that was lost to the estate by his failure to withhold the wages and commissions paid to Charles IT. Eilley and to apply the same to the payment of the Charles PL Eilley note, and his failure to collect the balance of the note after deducting these amounts, if that balance was collectible. • The total amount so charged by the court against the assignees was $3,437.06, while the total amount paid by the assignees to Charles H. Eilley was $2,848.65, which was $588.41, less than the amount charged against the assignees. So that, without any proof that the difference, between the amount Eilley owed the company and the amount of wages and commissions he received, could ,have been collected from Charles PI. Eilley, the court entered judgment against both of the assignees for that difference. Upon no principle or theory could this judgment be sustained as to John D. Eilley. It is true, that in the return to the order to show cause the assignees only set up that they had been “advised” that Charles PI. Eilley was not legally liable on said note. This is not a material or traversable issue. The question is, whether in fact he is liable, not what the assignees were “advised.” But this failure to state the facts upon which his liability or — 333 — non-liability depended, did not give tbe court the right to enter the judgment it did, for the court had no jurisdiction to try the question of his liability in a summary order to show cause. The court should have .appointed John D. Eilley, or some other suitable person as temporary sole assignee for the purpose and have directed him to sue Charles H. Eilley on the note, and in the meantime, and until the termination of that suit, should have withheld its approval of the assignees’ accounts and thereby have kept the wages and commissions that Charles PL Eilley had taken credit for under the control of the court so as to apply the same to the payment of the judgment in favor of the estate and against said Charles H. Eilley, if such a judgment was obtained. This the'court had power to do, but this was the extent of the power of the court as to the note. If the amount so retained did not extinguish the judgment so obtained, then the court had further power to charge against John D. Eilley any further amount, if any, that was lost to the estate by his neglect to collect the note, if it was collectible. It goes without saying that Charles PL Eilley is not entitled to receive from the assigned estate the wages and commissions while he is indebted to the estate, but that the one should be set off against the other. If he was not willing to have this done he could have prevented it, as to the commissions, by refusing to act as assignee. Plis appointment as assignee did not discharge the debt he owed the assigned estate nor did it make that debt cash in the hands of the assignee. [McCarty v. Erazer, 62 Mo. 263.] The debt became assets in the hands of the assignees, but not cash. There is no difference in this regard between an assignee and an administrator, and such is the law" as to administrators. [R. S. 1899, sec. 98 and 99; Young v. Thrasher, 48 Mo. App. 327.] — 334 — IV. It is argued, however, that in the allowance of the claim to Dana without setting off Dana’s indebtedness to the estate the assignees acted in a judicial capacity, and inasmuch as no appeal was taken from their judgment, it is final, and at any rate the court has no power, ex mero motu, to review or set aside their action in this respect. It is true, that in allowing and adjusting claims against the assigned estate, an assignee acts judicially and his acts have the attributes of judgments, and -any one dissatisfied with Ms ruling must appeal, in the manner prescribed, to the circuit court. [Eppright v. Kauffman, 90 Mo. 25; Nanson v. Jacob, 93 Mo. 331.] But while this is true as between the creditors and the assigned estate, the principle involved in no manner impairs the power of the circuit court to supervise the acts of the assignee in his administration of the assigned estate, and to withhold its approval of his reports and acts, and to refuse to discharge him from Ms trust if he has been guilty of maladministration. The whole ■ theory, scheme and policy of the statute relating to voluntary assignments is to have the administration conducted by an assignee subject to the supervision and approval of the court. The power to approve implies the right to prescribe the terms on which it will approve. And this carries with it the right to correct errors of the assignee and to control the distribution of the funds of the estate within the statutory limits, and to refuse credit to the assignee for any sum improperly paid out by him — resulting in charging the amount so paid out as so much cash in his hands. There is no merit in'the contention that the court has no right to interfere in this respect except upon exceptions filed by some one in interest. Courts have an inherent right to refuse their aid to the consummation of a legal wrong, even if all the parties — 335 — to- an action request it. And without the approval of the court the assignee’s acts do not become consummate or complete. Neither is there any merit in the contention that because the assignee is liable on his bond for acts of maladministration, the court charged with the duty of approving his acts is powerless to remedy or prevent the wrongful act during the course of the administration. In respect to creditors, in allowance of claims, the assignee acts judicially. At all times he is the representative of the assignor and not of the creditors. [Jacobi v. Jacobi, 101 Mo. 507; Drew v. Drum, 44 Mo. App. 25; Green v. Conrad, 114 Mo. 651; Roan v. Winn, 93 Mo. 503.] But in his capacity as the collector and distributor of the assigned assets, his acts are subject to the approval of the court. There are points of similarity and dissimilarity between assignees and. administrators, executors or receivers, but there is no room, under the statute, to doubt the power of the court to refuse to approve any act of an assignee which constitutes maladministration, and to correct it at any time, and before it is completed. The fact that the assignee has given bond to ■protect parties in interest from his wrongful acts does not impair the power of the court to correct his acts at any time during the course of the administration. Of course where the assignee has applied to the court for instructions as to any particular matter and has followed the advice or order of the court, the court could not afterwards revoke that order to the injury of the assignee. But in all such cases the assignee must show that he submitted the whole matter to the court, so that it was fully advised in the premises, for otherwise if he is not fully protected it is his own fault in not fully advising the court. Erom these considerations it follows that the court had full power to refuse to approve the sale of the Filley and Dana — 336 — notes to Brauer and Low, and that its action in so refusing was proper and right. Eor these reasons the judgment of the circuit court is reversed and the cause remanded to be proceeded with in accordancé herewith. All concur.